New Budget, New Economy?

Tax Partner David Brookes looks at what was missing in the Spring Budget 2017 and rates the Chancellor’s plans against our own New Economy policies.

With the economy ticking along nicely and a few controversies that needed to be put to bed quickly, major fireworks weren’t expected at this Budget and we didn’t really get them.

One of the main controversies in the run up to this Budget was around Business Rates. Business rates have caused a major headache for the Chancellor and businesses alike. He’ll be glad when the revaluation saga is over but hinted that the bigger problem has yet to be solved. In our New Economy report we want to see Business Rates reformed to be made fairer and more equitable for businesses. The Chancellor will undoubtedly also turn his attention to the unfair tax disparity of traditional and online retailers; an issue that is adding to the huge pressure already faced by high street retailers. I wouldn’t be surprised if the Government introduced some form of additional new tax on the ‘digital real estate’ of large online retailers.

One area where we can give Hammond a thumbs up is around investment and his attempts to address productivity. The Chancellor focused his speech on creating a system that supports innovation and productivity. Money is being set aside for Brexit jitters but once negotiations are over, say in Budget 2019, the Chancellor may look towards increasing the Annual Investment Allowance (AIA) to help increase productivity and unleash our manufacturing might. An increase to £5m over a five year period would be a game-changer. It would provide a significant incentive for businesses to invest in capital assets – such as plant and machinery – that will drive future growth and automation, and give businesses the confidence to plan ahead.

Having said that, more still needs to be done to boost productivity in the UK. According to the Office for National Statistics, in the time it takes a British worker to make £1, a German worker makes £1.35, a US worker £1.30 and a French worker £1.27. Almost half (43%) of businesses believe investment in infrastructure would boost productivity and help put the UK in its strongest position for Brexit. Investment in smart, connected infrastructure is about getting from A to B – both physically and digitally, in both production and automation – in the most efficient way possible. For every £1 invested in infrastructure, there’s a reported £3 return for the economy. This would be a good place for Hammond to put his money.

Who are the winners and losers in business?

Hammond wants to build a “stronger, fairer, better” Britain. The challenge with being ‘fairer’ is that there are inevitably going to be winners and losers. Gig economy workers who are self-employed have been hit with a phased 2% tax rise. Although bad news for those individuals affected, it does level the playing field. Aligning NIC takes tax out of the decision-making process for people choosing whether to be employed or self-employed. And it will give a £2bn boost to the Treasury’s coffers to 2022.

Small businesses definitely came out on top in this Budget. The Government focus on small businesses being the life blood of the UK economy resulted in support with business rate reliefs and a delay to digital quarterly reporting for those under the VAT threshold.

Although welcomed by start-ups and small business owners, it is frustrating that mid-sized businesses – those that grew faster and created more jobs than small or big firms last year – were once again largely ignored by policymakers.

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